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Finance, Firm Size, and Growth

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Author Info
Thorsten Beck
Asli Demirguc-Kunt
Luc Laeven
Ross Levine

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Abstract

This paper examines whether financial development boosts the growth of small firms more than large firms and hence provides information on the mechanisms through which financial development fosters aggregate economic growth. We define an industry's technological firm size as the firm size implied by industry specific production technologies, including capital intensities and scale economies. Using cross-industry, cross-country data, the results indicate that financial development exerts a disproportionately large effect on the growth of industries that are technologically more dependent on small firms. This suggests that financial development accelerates economic growth by removing growth constraints on small firms and also implies that financial development has sectoral as well as aggregate growth ramifications.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10983.

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Date of creation: Dec 2004
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Handle: RePEc:nbr:nberwo:10983

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Find related papers by JEL classification:
G2 - Financial Economics - - Financial Institutions and Services
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
O1 - Economic Development, Technological Change, and Growth - - Economic Development

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